How can I tell if I can file for Chapter 7?
Under the new law, the calculations for determining whether or not you are permitted to file for Chapter 7 are very complicated. The following will give you a way to determine generally where your income falls in relation to the Chapter 7 requirements, but you are encouraged to seek the advice and assistance of an attorney if you are considering filing for bankruptcy.
If your income is too high, you will not be permitted to file for Chapter 7. With the new changes in the law, you must first figure out what your current monthly income is and measure it against the median income in your state for a family of your same size. Note that the your current monthly income is not measured at the time you file for bankruptcy, but rather is your average income for the six months prior to filing. If you are contemplating filing for bankruptcy because you have suffered a job loss within the last six months due to your cancer diagnosis, your ‘current monthly income’ for the purposes of satisfying this aspect of the new law will no doubt be higher than what your actual monthly income is by the time you might be filing for bankruptcy protection.
To find the median income for your family size in your state, go to www.usdoj.gov/ust and click on the link for “Means Testing”. You will find information for Minnesota listed under Section 1, “Census Bureau Data”
If after comparing the two figures, your monthly income is less than or equal to the median, you can elect to file for Chapter 7 relief.
If it is more than the median figure for your state and family size, the new law requires that you now must pass a “means test” to determine whether or not you have enough disposable income to make payments under a Chapter 13 plan. You are permitted to subtract certain expenses such as food, clothing and certain household and miscellaneous expenses, but note that the amounts you are permitted to deduct for these items are amounts set by the IRS based on income guidelines, not the actual amount your family spends. You are also permitted to subtract the monthly amounts for payments that you have to make on “secured” or “priority” debts. Secured debts are those secured by real property (like your home) or personal property (like your car) that the creditor is entitled to seize or repossess if you do not make your payments. Priority debts are usually debts that are not dischargeable in bankruptcy such as child support payments, alimony, and tax debts. If your total monthly income is less than $100 after subtracting these amounts, then you may file for Chapter 7.
If your total monthly income is more than $166.66 after subtracting these amounts, then you did not pass the means test and may not file for Chapter 7 relief, but may be eligible to file for Chapter 13.
If your monthly income falls between $100 and $166.66, then you must determine if with the remaining amount of monthly income you can pay more than 25% of your unsecured, non-priority debts (meaning medical bills, student loans, credit cards for example) over a five-year period. If so, then you do not qualify for Chapter 7.